Monday, October 31, 2016

Co-Owner Of Outfit That Used Sale Leaseback Bait To Peddle Units In Since-Failed Resort Redevelopment Project To About 1,400 Investors Gets Pinched On Multiple Charges; Feds Say Racket Artificially Inflated Values In Deal That Turned Into Ponzi Scheme, Fleecing Victims Out Of $300 Million

In the Florida Keys, The Miami Herald reports:
  • The former chief financial officer of the failed Cay Clubs Resorts and Marinas was arrested [] on federal charges in Orlando, eight years after the Florida Keys-based company collapsed.

    David W. Schwarz, 60, also was vice president and a one-third owner of Cay Clubs, which federal prosecutors say turned into Ponzi scheme that cost investors $300 million.

    Schwarz was indicted on three counts of bank fraud, one count of conspiracy to commit bank fraud and three counts of making a false statement to a financial institution. He also faces an income-tax count.

    Cay Clubs founder and former president Fred Davis “Dave” Clark Jr. was convicted in December 2015 on bank-fraud and obstruction charges and sentenced to 40 years in federal prison.

    Clark owned two-thirds of the company that claimed it would redevelop 17 aging resorts in the Keys, Clearwater and Las Vegas into condo-hotels that would lure high-end visitors.

    About 1,400 people purchased the units, which came with promises of “leaseback” payments, rental income and soaring property value. “These representations were false,” the Securities and Exchange Commission says in a 2013 filing.

    Buyers were shown sales records of condo units that jumped in price, but were not told that many of the units were being sold to Cay Clubs insiders to artificially inflate the unit value, prosecution documents say.

    “Cay Clubs was in reality purchasing units from itself,” Wifredo A. Ferrer, U.S. attorney for South Florida, said in a statement. “Proceeds of these sales were diverted to Schwarz and Clark.”

    “As of March 26, 2007, Clark and Schwarz, based on their own accounting, obtained more than $28 million in proceeds from Cay Clubs, including salary payments, payments to third parties including for cash to close for condominium unit purchases, cash transfers, and credit-card payments,” says an indictment of Schwarz filed Wednesday.

    Schwarz authorized using money from new buyers to pay leaseback fees to earlier buyers, prosecutors charge, which turned the company into a Ponzi scheme that failed in 2008.

    In a Friday filing, prosecutors objected to a $200,000 bond placed on Schwarz by a federal judge in Orlando after the Thursday arrest. Schwarz’s home will serve as collateral.

    Schwarz “received millions of dollars in cash that are not accounted for,” the filing says.

    Schwarz “ has apparently been unemployed for years but continues to lead a lifestyle that appears to be funded by sources other than those that are readily apparent,” it continues. Schwarz “is experienced and sophisticated at hiding funds, creating shell companies and using shell-company bank accounts.”

    If convicted, Schwarz could face up to 30 years on each of the major counts. Kenneth P. Hazouri, an Orlando attorney representing Schwarz, could not be immediately reached.

    Former Cay Clubs sales executives Barry Graham, 59, and Ricky Lynn Stokes, 54, pleaded guilty to conspiracy to commit bank fraud and each received five years in prison.

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